Honest Tea Founders Tell Their Story Of Not-Too-Sweet Success

Barry Nalebuff (left) and Seth Goldman cofounded Honest Tea in 1997. Goldman is the company's TeaEO. Nalebuff is a professor at Yale School of Management.

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Originally published on August 30, 2013 8:51 am

If you want to know what prompted Seth Goldman and Barry Nalebuff to cofound Honest Tea, here's the simple answer they give on their website: They were thirsty. Goldman had taken Nalebuff's class at the Yale School of Management, and they were both tired of the super sweet iced teas available in stores. So in the late 1990s, they started their own company based on the hunch that other people out there felt the same way.

"What we realized is that there was a whole group of people like Seth and myself who were being left out of the market," Barry Nalebuff tells NPR's David Greene. "Nobody had paid attention to us. They didn't get it. We're adults. We had more sophisticated, grown-up tastes. We had no longer the same sweet tooth that we might have had as teens, and people weren't making what I would call normal beverages for adults."

They chronicle their adventures and misadventures in a new graphic novel, called Mission in a Bottle: The Honest Guide to Doing Business Differently--and Succeeding.

Interview Highlights

On how before you win over consumers, you have to win over distributors.

Goldman: "These distributors were used to sweet drinks. This is what was in the warehouse so it's what they drank. And they would taste our product and say, 'This isn't sweet. Where's the sugar in this? It needs more.' We weren't going to persuade them on the merits of taste. We had to persuade them on the merits of the business opportunity. We could say, 'Look, it sells to a consumer who's not buying your products.'... We've just been very fortunate, we've had consumers who get passionate about our product, who kind of harass the grocery manager if [the] product's not on the shelf, or who will go to another store to buy the product if it's not there."

On getting down on one knee and literally begging New York beverage distributor Irving Hershkowitz to pick up their product

On how you have to be very careful about tweaking your product, because every change has unintended consequences

Nalebuff: "This is a case where the complementarity between Seth and myself really came into play. Because, as an innovator, as someone who likes to do things differently, I was always trying to fiddle. And Seth helped put on the breaks sometimes; to realize nope, this is good enough."

Goldman: "One time, we actually developed a tea bag line. And we kept identifying ways to improve it."

Nalebuff: "Each change led to another problem. ... We tried to make the box bigger, but then they ended up being not quite so stable; it didn't fit on the shelves. And so you try and make one little tweak, but it ripples down and there's always unintended consequences."

On balancing innovation and stability

Goldman: "We've always recognized it's about continuous improvement. Our first production run was pretty ugly. We called it Honest Tea because we wanted to brew it with real tea leaves ... but we hadn't perfected the method of how to use real tea leaves. In the beginning our first production runs had about an inch and a half of tea sediment at the bottom. So we always wanted to innovate and iterate as we did it, but that tinkering can just get very challenging because you're mid-stream — we're also still selling this product in the marketplace."

On landing a deal with Coke, and the perception that they 'sold out'

Goldman: "We knew to make this a national brand, a powerful brand, an enduring brand, we needed to get distribution beyond where we were. We were doing well in natural food stores, we were doing well on the coasts, but we weren't able to give coverage to really most of the country. Initially when Coke invested we were in 15,000 stores. Today Honest Tea is in over 100,000 stores. And we're starting to have conversations with national chains we never had access to before so the doors that are open now — they open much more easily.

" ... I certainly understand why some consumers had perceptions that we had 'sold out' but I look at what we're selling: We're selling a product that's organic: It was organic before, it's organic now. We're reaching millions more people than we were before. So I don't feel a downside."

Nalebuff: "When the social responsibility is literally steeped in the product, if you can go from selling 100 million bottles to a billion bottles, you're really doing a much better job of achieving your mission. Even a small change in Coca-Cola – a 1 percent change in them – is going to be a whole lot more than what we could do on our own. The fact is, this is where consumers are going."

All right, say you want to sell something - like, maybe, bottled drinks. Make it taste good, sell it at a decent price and voila! OK, not quite. Barry Nalebuff is a management professor at Yale University. Seth Goldman was one of his students, and the two wanted to sell an iced tea that was less sweet than the ones they could find in stores. So they started a company called Honest Tea, having no idea what they were getting into.

A new graphic novel chronicles their adventure. It's called "Mission in a Bottle: The Honest Guide to Doing Business Differently - and Succeeding." When we spoke to them, Seth Goldman told us that one of their first lessons was learning that they didn't just have to win over consumers, but also distributors.

SETH GOLDMAN: It's one of those surprising dynamics where you realize these distributors were used to sweet drinks. This is what was in the warehouse, so it's what they drank. And they would taste our product and say, where's the sugar on this? And, it needs more. And so we weren't going to persuade them on the merits of taste. We had to persuade them on the merits of the business opportunity. We'd say, look, we've had consumers who get passionate about our product, who harass the grocery manager if it's - product's not on there.

GREENE: One of the panels in your graphic novel was really funny. It showed you, Barry Nalebuff , in front of a guy named Irv Hershkowitz?

BARRY NALEBUFF: Yes.

GREENE: A distributor who ran a company called Big Geyser. And you were on your knees, begging him to take on Honest Tea.

(LAUGHTER)

GREENE: I mean, did you really do that?

NALEBUFF: Everything in the book is honest. The fact is that he ran the best and biggest distributor in Manhattan, and if we couldn't get in that, we were really going to be kept out of New York City. So this was a make-or-break opportunity for us, and this was important that he give us a chance.

GOLDMAN: Barry has always been one person to send very clear signals.

(LAUGHTER)

GREENE: And getting down on your knees is a clear signal, right?

(LAUGHTER)

GOLDMAN: And the wonderful part about it is that Big Geyser still is our largest distributor in the country.

RENEE MONTAGNE, HOST:

Some of the smaller lessons that you talk about, I never would've thought of them. One is that sometimes, it's the best strategy just to not make changes - which I imagine for, you know, a small startup with big ideas and a mission, it's hard to restrain yourself.

NALEBUFF: This is a case where the complementarity between Seth and myself really came into play. Because as an innovator, as somebody who likes to do things differently, I was always trying to fiddle. And Seth helped put on the brakes sometimes; to realize nope, this is good enough.

(LAUGHTER)

GOLDMAN: One time, we actually developed a tea bag line. And we kept identifying ways to improve it. We said well, we could, you know, make the pouches easier to open...

GREENE: You thought you were just perfecting the tea bags.

GOLDMAN: Exactly.

NALEBUFF: And each change led to another problem. So then we tried to make the box bigger, but then it didn't fit on the shelves. And so there's always unintended consequences.

GOLDMAN: And that's always - especially because we've always recognized that it's about continuous improvement. Our first production runs had about an inch and a half of tea sediments in the bottom. But we're also still selling this product, and so we had to balance innovation against the reality of trying to build something in the marketplace.

GREENE: I want to fast-forward to 2008. This was nine years after struggling to get on store shelves and finally, you're growing and doing well; and you land a deal with Coca-Cola - behemoth. They take a 40 percent stake in your company. Was that a tough moment?

GOLDMAN: You know, for us, it wasn't. We had been through enough of the struggles on distribution to know that as exciting as the progress was, we knew to make this a national brand, a powerful brand, an enduring brand, we needed to get distribution beyond where we were. And we were doing well in natural food stores; we were doing well on the coasts. But we weren't able to give coverage to really, the - most of the country. So initially, when Coke invested, we were in 15,000 stores. Today, Honest Tea is in over 100,000 stores. And we're starting to have conversations with national chains we never had access to before, so the doors that are open now is just - they open much more easily.

GREENE: Is there a downside?

GOLDMAN: You know, I don't feel a downside. I certainly understand why some consumers had perceptions that we had quote-unquote "sold out." But I look at what we're selling. We're selling a product that's organic; all of our teas are fair-trade certified. You know, our mission has always been democratization of organics. And we're reaching millions more people than we were before. So I don't feel the downside.

GREENE: Barry Nalebuff, let me ask you. Give me the professor's viewpoint of a small organic idea joining up with something so corporate.

NALEBUFF: Well, when the social responsibility is literally steeped in the product, if you can go from selling 100 million bottles to a billion bottles, you're really doing a much better job of achieving your mission. And so even a small change in Coca-Cola - a 1 percent change in them - is going to be a whole lot more than what we could do on our own. The fact is that, this is where consumers are going.

GREENE: Barry Nalebuff, are you looking for another student to form a mission-driven company with, or was this a one-shot deal?